Financial restructuring and insolvency is a fast growing sector. There are credit counsellors, budget counsellors, financial coaches, debt settlement agencies, etc. But, let’s be careful. All these people do not offer the same solutions or the same advantages! So, when facing debt problems, to whom can one really turn to in order to make it through?
The trustees as bankruptcy and consumer proposal administrators
Trustees in bankruptcy are the sole professionals authorized to administer bankruptcies and consumer proposals. Those two solutions offer debtors important protections, which notably ensure that:
- their wages cannot be garnished;
- their creditors must end all recovery actions;
- the interest on their debt ceases to accumulate.
Trustees in bankruptcy’s fees are governed by legislation, which is not at all the case for credit counsellors or financial coaches. Furthermore, to be entitled to practise, trustees must earn a licence, meet a number of criteria and abide by a code of ethics. The profession is overseen by the Office of the Superintendent of Bankruptcy Canada (OSB).
Consequently, for all these reasons, trustees in bankruptcy are highly reliable professionals when it comes to debt settlement matters.
ACEFs and non-profit community organisations
It is generally possible to attend budget preparation workshops and get debt level assessment services free of charge. In Québec, ACEFs (Associations coopératives d’économies familiales) offer private information sessions and consultations. In Ontario, various non-profit community organisations also offer such services. The Ontario Association of Credit Counselling Services and the Credit Counselling Canada sites provide lists of accredited bodies working in the field.
As essential as the help provided to the population by these organisations may be, they do not have the ability to solve entirely a debt problem. For instance, ACEFs certainly have the possibility to make representations to the creditors, but they do not have the power to end the garnishment procedures or to negotiate a consumer proposal. Trustees in bankruptcy are the only professionals habilitated to do so.
The credit counsellors
Generally speaking, there are no real difference between a credit counsellor, a budget counsellor and other similar counsellors. Moreover, there is no regulation governing such activities, so anybody can call themselves a credit counsellor.
Generally, the services offered by these counsellors include:
- the preparation of a personal budget;
- the negotiations with creditors;
- the establishment of a debt reimbursement plan;
- the management of debts.
When managing debts, for example, they may agree to pay back the amounts due to the creditors on behalf of their client. The debtor can then stop paying back his creditors, and make one periodical payment directly to these counsellors. This way of doing things is not however without some drawbacks for the debtor. That is:
- It does not mean the end of calls from collection agencies.
- It offers no protection against garnishments of wages.
- The fees of these counsellors represent an additional expense.
- In some cases, these counsellors end up referring their client to trustees in bankruptcy after collecting their own fees.
Such counsellors nevertheless do fill a need, and can offer some kind of help in specific situations. But the solutions they propose do not suit everyone all the time.
The financial coaches
The term “financial coach” remains deliberately very vague. Unlike credit counsellors, financial coaches do not limit the solutions they offer to the field of insolvency. They provide advice on several current financial topics, including:
- banking transactions and operations;
- investment analysis;
- negotiation of loans;
- execution of wills;
- debt management.
Needless to say however that a debtor must have full confidence in is financial coach before trusting him with so many responsibilities. Especially given that, just like credit counsellors, anybody can call themselves a financial coach. This being said, some of these financial coaches actually have titles such as financial planner or mutual fund representative. These titles do guarantee their competence in investments, for example. However, I have yet to meet a financial coach who’s also a licenced trustee in bankruptcy.
5 questions to ask in order to avoid trouble
Obviously, all credit counsellors and financial coaches are not scammers. Questions to ask to make sure of the quality of the services you will be provided with include:
What are your fees?
The fees must be clearly defined and there should not be any hidden fees. Make also sure that the fees charged by such counsellors or coaches will not increase your debt.
Will the payments I make be applied to your fees first before you start paying back my debts?
Sometimes, credit counsellors or coaches start to reimburse your creditors only after they’ve paid themselves first. In such a case, fees for late payments to your creditors might increase even more.
Are you a member of a professional association?
If so, check with the professional association itself. If not, consider doing business with another professional.
What services will be covered under our agreement?
Make sure that you will not be facing additional fees to get services not listed in your agreement.
Will you provide the services yourself or will you refer me to other professionals?
Should the use of alternative providers be considered, make sure that you will have a say on the professionals you will make business with. Enquire also about the confidentiality policy of each advisor you will be meeting.
In insolvency matters, the best way to remain protected against scams is to enquire about the individuals or firms considered before signing any agreement with them. If you have doubts, look for an alternative. Even better, contact Ginsberg Gingras and we’ll be pleased to provide you with a list of qualified and legitimate professionals.